Tariff hikes ahead in India

Indian telcos are likely to hike tariffs after the completion of the Lok Sabha (lower house of the parliament) election, which is scheduled to start in April this year. The last tariff hike took place in November 2021.

"We expect tariff hikes to be announced post-elections (July-October time frame). Tariff increase is expected to be strong with around 15 percent hike across operators," says a note from Bernstein, as cited by media reports. 

The research agency further claims that Bharti Airtel, India's second-largest service provider, is likely to lead the tariff hike. Bernstein believes Airtel's average revenue per user (ARPU) is likely to increase to 260 Indian rupees (US$3.3) by 2025-26. 

According to the recent financial results, Airtel has an ARPU of INR208 ($2.5), followed by Jio with INR181.7 ($2.18), and Vodafone Idea with INR145 ($1.74). Airtel has a much better ARPU than other telcos because of its strategy of focusing on the quality of the user experience. The telco is also concentrating on the premium segment after discontinuing entry-level pre-paid packages last year. It has been vocal about the need to boost its ARPU.

"This improvement [in ARPU] is really due to three key drivers that continue to kick in: feature phone to smartphone upgrades, prepaid to postpaid upgrades, and driving share of wallet through a combination of data monetization and international roaming. Our 'Premiumization' agenda to upgrade customers to higher value plans has been working well and contributing to our ARPU growth in the absence of tariff hikes," said Gopal Vittal, managing director and CEO of Airtel, in a recent earnings call. 

Out of the top three service providers, Vodafone Idea has the lowest ARPU and is also in massive debt, which means it needs a tariff hike more than any other telco.

In addition to the tariff hike across all packages, the coming few months are likely to see the introduction of 5G tariffs. Telcos have invested heavily in procuring 5G spectrum and deploying the network, but they have not started to monetize their investments. 

The top two telcos, Reliance Jio and Bharti Airtel, launched 5G services in October 2022 and have almost completed their pan-India 5G coverage and have over 100 million 5G subscribers, but they have still not introduced 5G tariffs.